The Maker Foundation has taken a big step towards full MakerDAO decentralization, turning over control of the lending platform’s MKR governance token to holders on March 25.
The announcement came hot on the heels of a post-Black Thursday debt crisis that threatened to force an emergency shutdown of the Ethereum-based decentralized finance (DeFi) platform. That was resolved a day earlier by a reverse auction carried out following a series of votes by the MKR token holders.
The Maker Foundation has shared control of the MKR token contract since Dec. 20, a month after the launch of Multi-Collateral Dai (MCD), which allowed MakerDAO to accept cryptocurrencies other than ether as collateral for loans.
“Today’s news is momentous,” said Rune Christensen, CEO of the Maker Foundation, in a blog post. “By completing its commitment to transfer the MKR token contract to MKR holders, the Maker Foundation continues to move toward a completely self-sustaining MakerDAO.”
Which was always the goal—the “DAO” in MakerDAO’s name does stand for “decentralized autonomous organization,” after all.
Stepping back from joint control of MKR “is just the beginning,” said Christensen, who was No. 60 on the Modern Consensus 100 most Influential people in crypto 2020 list. “We will continue to ready the community for complete decentralization in the weeks and months ahead.”
Crisis confirms capability
The Maker Foundation’s blog entry suggested fairly clearly that the MakerDAO governance community’s response to the platform’s recent debt crisis is at least partially responsible for the timing.
“This transfer comes on the heels of an MKR debt auction that not only serves to recapitalize the Maker system after market activity resulted in the accumulation of protocol debt, but is also an embodiment of skin-in-the-game decentralized finance,” read the blog post. “The Maker community responded quickly and decisively to a difficult situation, aligning their assets with their passions.”
Even more importantly, the transfer of MKR token control is “the latest and most significant step yet toward complete system decentralization as the community embraces its larger, impending role in governing a self-sustaining DAO,” according to the blog.
A quick response
MKR tokens both govern and insure MakerDAO, which loans out DAI stablecoins worth $1 based on collateral of 150% in ether or BAT cryptocurrencies, or—as of last week—125% in USD Coin stablecoins.
In the event of a collapse in the collateral’s value—like the sudden 30% drop in the price of ether during the recent market-wide panic—MKR tokens are automatically minted and auctioned off to cover the shortfall. A stability fee compensates MKR holders for the risk.
The sudden 30% drop in the price of ether during the market-wide panic triggered automatic auctions of borrowers’ ETH collateral. But it happened so fast that the MakerDAO infrastructure could not keep up, ultimately leaving it with millions of dollars in bad debt. A series of reverse auctions that ended on March 24 raised $4.3 million, despite a few technical glitches.